Memo to Cramer about Bear Raids…

Hey, pal. Always fun to tangle with you on TV, as we did with Dennis Kneale and host Erin Burnett on CNBC’s Squawk on the Street Tuesday. Been way too long. (Click here to see the video.)

Erin said I won; you said you won. Doesn’t really matter, though you have to admit I landed a good right hook at the very end.

As always, you make good points, but I do have one small quibble. We got to talking about short-sellers and the uptick rule, which the SEC recently abolished on individual stocks. Then, repeating something you said on your must-see TV show, Mad Money, you said that having no uptick rule –which means stocks can only be sold short as a stock rises — “puts us back into a 1930s style bear raid…with all that gang tackling.” Your comments were considered so compelling that they made it onto Wikipedia under uptick rule.

Nineteen-thirty’s-style bear raid? Gang tackling?

You can imagine how that went over with the country’s biggest short-seller, Jim Chanos. He sent me a very brief email that said, “The Pecora Hearings in 1933-34 in the US Senate COMPLETELY exonerated short-sellers of any wrongdoing (“bear raids”, etc) in the 1929-32 Crash.”

That got me more interested in the subject of bear raids, so I Googled the topic and checked with a few folks and came across an absolutely marvelous piece on the subject by Edward Chancellor, who has authored his share of articles and books on the financial markets and speculation. Headlined, “A Short History of the Bear,” his bear raid story it was published in 2001 in the Daily Reckoning. (Scroll about a third of the way down the page to get to the story.)

Some snippets:

Bubbles occur when speculators drive asset prices
far above their intrinsic value. The collapse of a
bubble is frequently accompanied by an economic crisis.
Who gets the blame for this crisis? Not the bulls, who
were responsible for the bubble and the various frauds
and manipulations perpetrated to keep shares high, while
cashing in their profits.

No, it is invariably the bears who are blamed for the
post-bubble crises and are the main objects of anti-
speculative legislation. Yet during the bubble periods
it is the bears who are generally the lone voice of
reason, warning people of the folly of investing in
overpriced markets. In the aftermath of a bubble, they
continue their forensic work of exposing unsound
securities and bringing prices back in line with
intrinsic values, a point which must be reached before
the recovery can start.

And:

Wild rumors spread of bear raids, of fabulous profits
made by short-sellers, and of political conspiracies
hatched by foreigners interested in bringing down the
market, the dollar and the U.S. economy. In early 1932,
the Philadelphia Public Ledger maintained that “European
capitalists had supplied much of the cash needed to
engineer the greatest bear raid in history. These
proverbially open-handed and trusting gentleman had
accepted the leadership of New York’s adroit Democratic
financier, Bernard Baruch.” Baruch, the best known
short-seller in the country, shrugged off the charge.

And this:

…the Senate investigation into Wall Street, intended to
uncover the nefarious activities of the shorts, found
little to go on. A list of 350 leading bear speculators
presented to the committee contained only one familiar
name…Having no luck with the bears, the investigation
turned its attention to the bulls of yesteryear. This
was much more fertile ground.

The Pecora hearings, as they became known (after their
lead counsel, Ferdinand Pecora), revealed the seamier
side of Wall Street during the bull market: the
involvement of leading firms and bankers in the
manipulation of share prices, the dumping of unseasoned
securities on an innocent public, the fleecing of the
firms’ own clients, the preferential distribution of
shares to favored friends, and so on.

The more things change…!

Anyway, hope that sheds a little light.

Respectfully.

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